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Will the cryptocurrency market recover?

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CRYPTOCURRENCIES have risen slightly over the past 24hours, proving the consistently volatile nature of coins like Bitcoin, Dogecoin and Ethereum.

The value of Bitcoin has recovered slightly, although it is still down 6.3% over the past seven days, and the global crypto market is up 3.65% at the time of writing.

Cryptocurrency markets are volatile meaning prices go down and up very quickly

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Cryptocurrency markets are volatile meaning prices go down and up very quicklyCredit: Getty

The extreme volatility and accompanying sudden market falls are one of the reasons that investing in cryptocurrency is a very risky business.

You should never invest in something you don’t understand and make sure you don’t put in money that you can’t afford to lose.

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Which cryptocurrencies have risen in value?

The price of Bitcoin is up by 1.45% over the past 24 hours, according to Coinmarketcap.

It’s currently sitting at a value of $45, but still significantly below highs of $64,000 in April last year.

The second biggest cryptocurrency Ethereum has also risen in value in the last 24 hours and so have other popular coins like Dogecoin and XRP.

However, despite the uptick, all three are still at lower values than this time last wekk.

Ethereum is up by about 3.68%, trading at $3,363 at the time of writing, while Dogecoin is up 4.95% at $0.1604

Dogecoin’s rival, Shiba Inu, is also up 12.84% at $0.00003177.

It comes after a series of hammer blows to a number digital currencies, which have never fully climbed back to the highs of April 2021.

Why are currencies up?

It’s not clear what has caused Bitcoin’s, and other coins’, small spike in value – but fluctuations are to be expected given the volatility of cryptomarkets.

The coins suffered throughout the second half of 2021 after they were hit by market forces and tougher regulation.

Most recently, stock markets dived as investors sold off a large number of assets in a short amount of time, which affected cryptocurrencies too.

In July last year, the Met Police also seized nearly £180million in the largest-ever cryptocurrency raid in the UK.

Meanwhile, the world’s biggest cryptocurrency exchange, Binance, was banned from operating in the UK by the financial watchdog in June.

While Brits can still buy and trade coins on the platform, it means Binance is no longer allowed to “undertake any regulated activity” in the UK.

China is also getting tough on cryptocurrency mining – the energy intensive method of creating new coins.

A number of authorities across the country have ordered crypto-mining projects to close – including the Sichuan province.

Iran has banned the mining of cryptocurrencies including Bitcoin for nearly four months because the country faces major blackouts and mining uses lots of power.

Meanwhile, poster adverts for cryptocurrency platform Luno have been banned for failing to mention the risk of Bitcoin investments.

5 risks of crypto investments

THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.

  • Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements. 
  • Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
  • Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market. 
  • Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.  
  • Marketing materials: Firms may overstate the returns of products or understate the risks involved.

Will the crypto markets recover?

It’s impossible to predict whether cryptocurrencies will go up or down.

At the end of 2020 and start of 2021, crypto markets had been experiencing a huge surge on the back of adoption among traditional financial firms.

The market reached record-breaking highs in April before plummeting dramatically in May, seeing billions wiped from currency values.

This crash was sparked by China announcing a crackdown on cryptocurrencies and Bitcoin founder Elon Musk revealed that Tesla would no longer accept it as payment.

Whether the market will ever recover to April levels remains to be seen, and depends on plenty of factors.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, warned that other countries could follow China in cracking down on crypto which could hit values, and growing concerns around Bitcoin’s energy use could also drag down prices.

She told the Sun: “The direction of travel is far from clear, as some crypto fans may see the recent falls as an opportunity to buy into their currencies at a cheaper price.

“Many cryptocurrencies and tokens are heralded as being part of the decentralised finance movement, which aims to disrupt current payment systems.

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“In this murky world, where the use case of cryptocurrencies is far from proven, traders should only dabble with money they can afford to lose.’’

Laith Khalaf, financial analyst at AJ Bell, added: “The difficulty with crypto is that the possible outcomes are extreme – either high loss or high return.

He added: “The difficulty is crypto offers little or no economic value in the here and now, and an extremely unpredictable value in the future, as its long term adoption by businesses and consumers is uncertain, to say the least.”

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This post first appeared on thesun.co.uk

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